LeMaitre Vascular Inc (LMAT) 2012 Q1 法說會逐字稿

Welcome to the LeMaitre Vascular Q1 2012 Financial Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Mr. J.J. Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Thank you, Larry. Good afternoon, and thank you for joining us for our Q1 2012 conference call. Joining me on today's call is our Chairman and CEO, George LeMaitre, and our President, Dave Roberts.

Before we begin, I would like to read our Safe Harbor Statement. Today, we will discuss some forward-looking statements, the accuracy of which is subject to risks and uncertainties. Wherever possible we will try to identify those forward-looking statements by using words such as belief, expect, anticipate, forecast and similar expressions. Please note, these words are not the exclusive means for identifying such statements.

Please refer to the cautionary statement regarding forward-looking information and the information under the caption risk factors in our 2011 10-K and subsequent SEC filings, including disclosure of factors that could cause actual results to differ materially from those expressed or implied. During this call, we may discuss non-GAAP financial measures. Please refer to our earning release and our website, www.lemaitre.com for discussion and reconciliation of non-GAAP financial measures.

I will now turn the call over to George LeMaitre.

Thanks, J.J. I'd like to begin with our Q1 2012 results. Then I'll discuss the growth drivers emerging in our business. I'll finish with some remarks about the AlboGraft notices we received from the UK and France. I'm pleased to report that sales were up 8% organically in Q1. This growth is a result of our 2011 restructuring programs, as well as our significantly larger worldwide sales force. Organic growth was led by Japan, up 19%, and Europe, up 13%. The turnaround which we worked to engineer in 2011 is now taking root in 2012.

In 2011, most of our challenges were in Europe as we struggled to sell both stent grafts and open vascular devices through one combined sales channel. To sort out this mismatch, we jettisoned our stent graft platforms and replaced stent graft reps with vascular reps. With our strategy more crystallized and our sales bag more coherent, we also elected to build out our European sales force by another third, from 24 reps a year ago to 31 at the end of Q1 2012.

Another piece of the sales force ramp was our newly direct efforts in Spain and Denmark, which combined to nearly double sales. Globally, we have grown our sales force by 20% in the last year. And all this has been done economically, as sales and marketing expenses increased just 5% in Q1 2012 versus the year earlier quarter. LeMaitre Vascular now has 79 sales reps in 13 countries.

In addition to our accelerating geographic penetration, I would like to highlight a few of our product growth drivers. In Q1 2012, we broadened our XenoSure distribution agreement to include Canada. Prior to this expansion, XenoSure had been posting growth rates in excess of 40%. My guess is that XenoSure sales growth rate will accelerate beyond this 40% rate in 2012 due to the late 2011 European launch and the recent expansion to Canada. As XenoSure begins to account for a bigger slice of our revenue, this product's growth rate will take on increasing importance to our overall growth rate. As a reminder, we own an exclusive option to acquire XenoSure in January 2014.

Other product launches are contributing growth also. The UnBalloon and the Over-the-Wire LeMaitre Valvulotome launched in Q4/Q1 and are now running at about $600,000 a year in sales. We also continue to uncover a significant growth opportunity in our Embolectomy Balloon Catheters. Balloon catheter sales were up 14% in Q1 2012 as the number one competitor, Edwards Lifesciences, effectively dismantled its vascular sales force in 2009/2010 in order to concentrate on heart valves. We believe we are the second or third player in this market, and we are beginning to fill the Edwards void with our own high-quality balloons and our focused vascular sales force.

Amidst these opportunities, in April the British and French regulators issued prohibition notices preventing AlboGraft sales in their countries. Of a total of eight worldwide complaints alleging porous devices, four came from Britain and none led to a serious injury. It strikes me as a statistical anomaly that 50% of the complaints were in the UK, where just 15% of AlboGraft sales happen. At the time of the eighth complaint, 6,000-plus Burlington manufactured devices had already been shipped. This complaint rate is in line with other grafts according to US public data. We remain confident that AlboGraft meets our high quality standards and those are the markets we serve.

These notices are not recalls, and devices already sold and on hospital shelves in Britain and France may be used. We also continue to sell in all previously approved geographies including the US, Germany and Europe. The German regulator has verbally confirmed its support of AlboGraft use, and in February the US FDA completed a routine audit of LeMaitre, including AlboGraft manufacturing, with zero observations. For context, these were the first two such notices in our 29-year history.

We are now appealing the British and French rulings, while seeking to satisfy their concerns. In a face-to-face meeting in London, the agency indicated it might inspect our Burlington facilities in Q2 as part of a resolution process. We hope the notices will be lifted within three to six months, but of course this is in the regulators' hands. AlboGraft sales in the UK and France accounted for less than 2% of our worldwide sales in Q1 2012. This news is more than outweighed by the emerging benefits of the 2011 restructuring programs. Our 2012 sales bag is more focused. We have a larger sales footprint. And we've consolidated all our production into one location.

In addition, our product palette contains several quality shots on goal. XenoSure is posting heavy growth rates; the UnBalloon and the Over-the-Wire LeMaitre Valvulotome represent true innovation; and our Embolectomy Balloon Catheters are filling a void left by a competitor. All four products represent significant growth opportunities when delivered through our 79 direct sales reps in 13 countries. It was nice to return to 8% organic sales growth in Q1 2012.

With that, I'll turn the call over to J.J.

Thanks, George. As we move away from the initiatives of 2011, we should be setting ourselves up for cleaner quarters and improved P&L statements in 2012. With this in mind, I would like to now review our Q1 gross margin and operating expenses, and then say a few words about our share repurchase program, dividends and guidance.

Gross margin was 70.9% in Q1 2012 versus 69.5% in the prior year period. The gross margin increase was largely the result of the Italian factory closure, higher average selling prices, improved mix, and was partially offset by inventory write-offs related to AlboGraft of about $375,000. Two drivers of the higher margin were improved sales mix as we exited distributed stent grafts, and the Italian facility closure. Both were direct results of our 2011 initiatives.

Moving down the P&L, total operating expenses were $9 million in Q1 2012, down slightly from the previous year. Here too, we enjoyed benefits from our 2011 initiatives. Research and development expenses in Q1 2012 decreased 11% to $1.1 million, largely the result of our exit from stent graft trials and associated royalties. Q1 2012 G&A decreased 6% to $2.7 million, mainly due to the closure of the Italian facility and a reduction in compensation costs. Q1 2012 selling and marketing expenses increased 5% to $5.2 million, driven by additional sales representatives, as well as an increase in direct marketing.

Q1 2012 operating income was $900,000 versus an adjusted operating profit of $1.1 million in Q1 2011. Higher gross margin and tight operating expense control in Q1 2012 were not quite able to offset the loss of stent graft sales. Net income in Q1 2012 was $386,000 or $0.02 per diluted share.

I'm pleased to note that Q1 2012 was our second consecutive quarter without significant special operating charges. In 2011, we exited stent grafts, went direct in Spain and Denmark, and began the transfer of two manufacturing facilities to Burlington. While strategically important, the moves generated significant restructuring charges from Q4 2010 through Q3 2011. These charges were largely absent in the last two quarters, although the manufacturing transfers continue to hinder our gross margin.

Cash and marketable securities were $19.6 million at March 31, 2012, a decrease of $500,000 during the quarter. The decrease was driven by annual bonus and sales commissions of $1.5 million, share repurchases of $600,000, and equipment purchases of $300,000, all of which were largely offset by cash generated from operations. We continue to pay dividends and buy back our stock.

In April, our Board of Directors approved the payment of a quarterly cash dividend of $0.025 per share of common stock. The dividend will be paid on June 4, 2012 to shareholders of record on May 18, 2012. Also, during Q1 2012 we've purchased $600,000 of our shares. Since August 2009, we have purchased $5.3 million of our stock. We have $4.7 million of repurchases remaining in our $10 million program which ends December 31, 2013. Both the dividend and the stock buyback program underscore our confidence in the Company's ability to generate cash and our desire to return value to shareholders.

Turning to guidance, we expect Q2 2012 sales of $14.2 million, up 6% organically versus Q2 2011, and reported operating income of $1 million. We also expect 2012 full-year sales of $57 million, up 8% organically versus 2011, and reported operating income of $5 million.

Our full-year 2012 top line guidance has been revised downwards by $500,000 to reflect the likely temporary loss of AlboGraft sales in the UK and France. AlboGraft accounted for $1 million of sales in 2011 in these two countries.

With that, I'll turn it back over to the operator, Larry, for Q&A.

Thank you.

(Operator Instructions)

It does look like you have a couple guys up there, Larry. Jamar and also Larry Haimovitch.

Thank you. And our first question comes from the line, line of Jason Mills of Canaccord Genuity. Please proceed.

Hi, guys, this is Jamar calling for Jason.

Afternoon, Jamar.

Hey. My first question I guess is on the AlboGraft. First can you, can you let me know how much of the inventory write-off -- so there's a $100,000 that was just due to the stoppage of sales in the UK and in, and France -- how much was just due to the, still to the transfer of the factory?

So in the quarter, Jamar, we had about $375,000. About $100,000 of that, as you say, was basically due to UK and France as reduced -- we reduced our unit projections going forward. And then, and then the rest was basically due to testing as we made sure our quality was as high as it could be before it went out the door.

Okay, thanks. And then -- okay. So thinking about gross margin going forward, say of that like $275,000 in this quarter of the testing -- how much do you think that goes down in Q2?

I would say you can think of it getting better incrementally over time. I can't really tell you. We're not forecasting gross margin. But I would say we wouldn't expect to be doing this amount of testing and have this much excess and obsolete write-offs for AlboGraft-related items going forward. So, you know, some piece of that $375,000 is going to go away hopefully quarter by quarter over time.

Okay. Then I guess, in looking at the UnBalloon and Over-the-Wire Valvulotome, can you just give a little bit more color on the, the ramp there? Are you in full launch in both of those?

Sure, in some ways it's good. I think we're a little bit slow out of the gate in Europe due to some additional regulatory filing work that we needed to do in some of the outlying markets like Italy and Spain. And so I feel like in the US the answer is, yes, we're in full ramp on both of those. It's fully launched. There's nothing holding us back. And I would say in Europe you still probably have half more of the engine to get started over there.

So on the last call we mentioned that we thought the run rate was about $500,000 a year, and on this call it's goosed up a little bit to $600,000 a year. My feeling is, it's still going to go up from here, but we'll see, and time will tell.

Okay, great. And then I guess just my last question is on sales reps. So what's your goal of adding for the rest of the year?

Sure. I feel like we continue to play around with this number, about 82 to 85 as the year goes on. We have taken a big bite over the last 12 months, and we'll see how that works out. And then settle in there and then maybe go from there after that.

All right, great.

Okay, thanks, Jamar.

Thanks a lot, guys.

(Operator Instructions)

And our next question comes from the line of Larry Haimovitch of HMPC. Please proceed.

Good afternoon, gentlemen.

Afternoon, Larry.

Any comments -- updated comments on UnBalloon? You may have made them earlier on in the call. I jumped in a little bit late. Any progress you can report, or any update at all?

I mean, just the answer to Jamar's question which is, over in Europe I feel like we're a little bit slow getting those launches going for a variety of reasons. So you probably still haven't seen us at full throttle on both UnBalloon and Over-the-Wire. It's going well. It's -- the two of them together are $600,000.

And the split there -- Larry, we're not trying to hide anything -- the split there is roughly half and half. If I were to editorialize, I would say the Valvulotome is going a scooch better than the UnBalloon, although the data set that I'm working with right now at my desk is so small that it's very hard to see where it's going.

Yes. And remind me, you do have FDA approval now for UnBalloon. Right?

Both FDA and CE approval for both devices.

Okay, good. And then, for any of you -- J.J. or whoever -- just update me on the, the -- you have an authorization in place on the buyback -- how much more could you do this year based on the current authorization from the Board?

So we've got authorization, Larry, to buy back $10 million of stock. We're about $5.3 million through that. So about $4.7 million left through this year and next year. So we basically have a year and three quarters to get the remainder done.

So you've done a little over half of the fully authorized amount?

Exactly.

How many shares have you bought back with that $5.3 million, J.J.?

I would say about $800,000 or so.

Okay. So that's been a meaningful number compared to the total shares outstanding?

Yes, I mean, if you look at our fully-diluted and basic shares outstanding over the last year, year and a half, they're both down about 300,000 shares. So we've sopped up some extra shares with the buyback, for sure.

Yes, good. Thanks, guys.

Thanks, Larry.

(Operator Instructions)

I would now like to turn the call back over to Mr. George LeMaitre for closing remarks.

Thanks, Larry. First, I'd like to thank all the participants on this phone call. I'd also like to mention that we'll be speaking at the Bank of America-Merrill Lynch Conference on May 16th in Las Vegas, the Sidoti, Wells Fargo and Three-Part Advisor Conferences in June, as well as the Stifel-Nicolaus Conference in September.

And with that, I'll turn the call back over to Larry. Thank you very much.

You're welcome. And, ladies and gentlemen, that concludes today's conference. I would like to thank you for your participation. And you may now disconnect. Have a great day.